First Quarter Results in Line with Our
Expectations; University Group Operating Income Increases 7.6%
Career Education Corporation (NASDAQ: CECO) today reported
operating and financial results for the first quarter 2015. In a
separate news release issued today, the company also disclosed its
plan to teach-out or divest its remaining Career Colleges in order
to focus resources on its University Group.
Business Highlights:
- University Group operating income
increased 7.6% year-over-year to $11.7 million for the quarter
- For our continuing operations, lowered
operating expenses by $13.2 million or 6.0% during the first
quarter as compared to the prior year with 2015 operating expenses
tracking in-line with the company’s expectations
- On track against key objectives to
generate modest total student enrollment growth within our
University segments; to strengthen academic outcomes, to enhance
regulatory compliance and simplify our business model; to reduce
the organizational cost structure; and to successfully continue to
complete the teach-out of our Transitional campuses
- Adjusted EBITDA was $11.4 million for
the University Group and Corporate for the first quarter of 2015,
an improvement of $1.2 million as compared to the prior year
quarter
- Adjusted EBITDA for Career Colleges,
Transitional Group and discontinued operations improved to ($23.2)
million, compared to ($43.0) million in the same quarter last year,
as a result of the completion of teach-outs and continued focus on
reducing lease obligations
- Company continues its sale process for
Le Cordon Bleu and is engaged in discussions with numerous
interested parties
- Initiated strategy to divest and/or
teach-out remaining Career Colleges and expects cumulative actions
to be accretive to 2015 results excluding restructuring
charges
Chairman and Interim CEO Ron McCray commented, “Our first
quarter results were in line with our expectations as the progress
of our turnaround continues to gain traction. The announcements we
are making today regarding our Career Colleges will accelerate the
company’s path to profitability. This process will also enable us
to right-size the company’s corporate overhead expenses and sharpen
our focus on costs within the University Group to be more in line
with comparable leading education peers. At the same time, the way
we are approaching the dissolution of our Career Colleges through a
gradual teach-out or sale of institutions provides students with a
reasonable opportunity to complete their programs of study.”
“Career Education has a bright future, with a strong University
platform that positions us for long-term success. Further, our
strong balance sheet will enable us to responsibly invest in
initiatives that will result in positive outcomes for our
University students and help us grow our University Group in the
future,” McCray said.
REVENUE
For the first quarter of 2015, total revenue was $182.3 million,
an 8.0 percent decrease from $198.2 million for the first quarter
of 2014. Total revenue for the University Group was $138.2 million
for the first quarter of 2015, which was relatively flat compared
to $139.5 million for the first quarter of 2014.
Revenue ($ in thousands) Q1
2015 (3) Q4 2014 (3) Q3
2014 Q2 2014 Q1 2014
CTU $ 85,127 $ 82,202 $ 82,410 $ 85,041
$ 86,920 AIU 53,066 44,749
51,889 49,685 52,573 Total University
Group 138,193 126,951 134,299
134,726 139,493 Career Colleges 39,772
41,613 40,799 42,589 47,832 Corporate and Other 39 40 52 38 100
Transitional Group (1) 4,298 5,603
7,675 8,819 10,729 Total (2) $
182,302 $ 174,207 $ 182,825 $ 186,172 $
198,154
__________
(1)
Campuses included in the Transitional
Group are in the process of being taught out and therefore no
longer enroll new students or have ceased operations subsequent to
December 31, 2014 and no longer qualify for discontinued operations
treatment under Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 360 – Property,
Plant & Equipment.
(2)
Excludes discontinued operations, which
consists of the results of operations for campuses that have ceased
operations prior to 2015, our Le Cordon Bleu campuses which are
held for sale and campuses that were sold and are considered
distinct operations under FASB ASC Topic 205 – Presentation of
Financial Statements.
(3) Fourth quarter of 2014 total revenue was negatively impacted by
approximately $9.4 million due to the accounting for students who
withdraw from one of our institutions prior to completion of their
programs. This cumulative adjustment was recorded during the fourth
quarter of 2014. First quarter of 2015 was negatively impacted by
approximately $1.9 million related to this change in accounting.
TOTAL AND NEW STUDENT ENROLLMENTS
For the first quarter of 2015, total student enrollments for our
University Group were 33,800, which was relatively flat
year-over-year. Total student enrollments were impacted by the
teach-out of two campuses within the University Group. Excluding
these two campuses, total enrollments increased slightly as
compared to the prior year quarter, marking the first time since
2010 that we have reported an increase for University total student
enrollments. We continue to expect modest total student enrollment
growth for the full year 2015. New student enrollments for the
University Group were 10,130 compared to 10,720 in the first
quarter of 2014. This decrease was primarily attributable to a
change in the methodology used to calculate new student enrollments
at AIU in 2014 related to cancelled student enrollments. Excluding
the impact of this change, new student enrollments within the
University Group were down only 1.2% during the first quarter as
compared to the prior year quarter.
Total Student Enrollment
Q1 2015 Q4 2014 Q3 2014
Q2 2014 Q1 2014
CTU (1) 20,300 20,400 19,800 19,800 20,600 AIU (1)
13,500 11,600 11,500 10,800 13,300
Total University Group 33,800 32,000 31,300
30,600 33,900 Career Colleges 8,600 8,500 10,000 8,600
10,700 Transitional Group 900 900 1,300 1,700
2,300 Total 43,300 41,400 42,600 40,900
46,900
New Student Enrollments
Q1 2015 Q4 2014 Q3
2014 Q2 2014 Q1 2014 CTU
5,040 5,670 5,460 5,280 4,820 AIU (2) 5,090 3,370
3,300 2,010 5,900 Total University Group 10,130
9,040 8,760 7,290 10,720 Career
Colleges 1,830 1,140 3,150 1,580 2,780 Transitional Group (3) -
10 140 80 220 Total 11,960
10,190 12,050 8,950 13,720
__________
(1) A portion of the total student enrollment decrease for
the University Group resulted from campus location teach-outs which
negatively impacted the comparison of the current quarter versus
the prior year quarter as a result of the wind down of operations
at one location within each segment. (2) Beginning in the second
quarter of 2014, AIU changed its methodology related to certain
cancelled student enrollments. As a result, the decrease in the
current quarter versus the prior year quarter was partially a
result of this change in methodology. (3) Campuses within the
Transitional Group no longer enroll new students; students who
re-enter after 365 days are reported as new student enrollments.
OPERATING (LOSS) INCOME
For the first quarter of 2015, operating loss of $24.6 million
increased 12.1 percent compared to an operating loss of $21.9
million in the prior year quarter primarily due to increased asset
impairment charges of $5.9 million in the current year quarter
versus the prior year quarter. Total University operating income
increased to $11.7 million from $10.9 million in the prior year
quarter, an increase of 7.6 percent. This increase was primarily
driven by ongoing cost improvement initiatives.
Operating (Loss) Income Q1 2015
Q4 2014 Q3 2014 Q2 2014
Q1 2014 ($ in thousands)
CTU
$ 14,616 $ 23,356 $ 10,698 $ 20,957 $ 14,481 AIU (2,887 )
(304 ) (4,194 ) (1,331 )
(3,583 ) Total University Group 11,729
23,052 6,504
19,626 10,898 Career Colleges
(1) (22,110 ) (13,650 ) (29,908 ) (16,273 ) (13,922 ) Corporate and
Other (2) (5,860 ) (7,048 ) 2,528 (5,513 ) (11,136 ) Transitional
Group (8,360 ) (10,138 ) (10,856
) (9,091 ) (7,789 ) Total (3) $ (24,601
) $ (7,784 ) $ (31,732 ) $ (11,251 ) $
(21,949 )
__________
(1) Asset impairment charges of $6.0 million, $3.9 million
and $12.8 million were recorded during the first quarter of 2015,
fourth quarter of 2014 and third quarter of 2014, respectively. (2)
Income related to a net insurance recovery of $8.6 million was
recorded during the third quarter of 2014. (3)
Excludes discontinued operations, which
consists of the results of operations for campuses that have ceased
operations prior to 2015, our LCB campuses which are held for sale
and campuses that were sold and are considered distinct operations
under FASB ASC Topic 205 – Presentation of Financial
Statements.
ADJUSTED EBITDA
The Company believes it is useful to present non-GAAP financial
measures, which exclude certain significant items, as a means to
understand the performance of its operations. (See tables below and
the GAAP to non-GAAP reconciliation attached to this press release
for further details.)
For the first quarter of 2015, adjusted EBITDA for the
University Group and Corporate increased $1.2 million compared to
the prior year quarter. Adjusted EBITDA for Career Colleges,
Transitional Group and discontinued operations was ($23.2) million
for the first quarter of 2015, compared to ($43.0) million in the
prior year quarter. This favorability is a result of the completion
of teach-out campus operations and continued focus on reducing
lease obligations once a teach-out is complete.
Adjusted EBITDA Q1 2015
Q4 2014 Q3 2014 Q2 2014
Q1 2014 ($ in thousands)
University Group
and Corporate:
Pre-tax loss from continuing operations $ (24,990 ) $ (7,747 ) $
(31,651 ) $ (11,664 ) $ (21,442 ) Transitional Group operating loss
8,360 10,138 10,856 9,091 7,789 Career Colleges operating loss
22,110 13,650 29,908 16,273 13,922 Interest expense (income), net 2
(38 ) (120 ) (177 ) (25 ) Depreciation and amortization (1) 4,361
5,170 5,402 5,732 6,108 Stock-based compensation (1) 940 966 950
1,020 1,341 Legal settlements (1) (2) - - - (400 ) 2,850 Asset
impairments (1) - - 73 - 77 Unused space charges (1) (3) 556 (373 )
(368 ) (363 ) (380 ) Insurance recovery - - (8,588 ) - - Cumulative
adjustment related to revenue recognition (1) 93
1,354 - - -
Adjusted EBITDA--University Group and Corporate $
11,432 $ 23,120 $
6,462 $ 19,512 $
10,240 Memo:
Advertising Expenses $ 50,587 $
36,731 $ 50,410 $
37,407 $ 46,655
Career Colleges,
Transitional Group and Discontinued Operations:
Pre-tax loss from discontinued operations $ (102 ) $ (17,195 ) $
(15,201 ) $ (33,046 ) $ (36,481 ) Transitional Group operating loss
(8,360 ) (10,138 ) (10,856 ) (9,091 ) (7,789 ) Career Colleges
operating loss (22,110 ) (13,650 ) (29,908 ) (16,273 ) (13,922 )
Loss on sale of business (4) - - - 311 - Depreciation and
amortization (4) 2,351 7,319 7,739 8,662 9,323 Legal settlements
(4) 1,485 - 225 2,000 3,000 Asset impairments (4) 6,019 14,203
14,412 7,454 (10 ) Unused space charges (3) (4) (2,424 ) (2,063 )
(3,343 ) 920 2,873 Cumulative adjustment related to revenue
recognition (4) (67 ) 1,029 -
- -
Adjusted EBITDA--Career
Colleges, Transitional and Discontinued Operations $
(23,208 ) $ (20,495 ) $
(36,932 ) $ (39,063 ) $
(43,006 )
Consolidated Adjusted EBITDA $ (11,776
) $ 2,625 $ (30,470
) $ (19,551 ) $ (32,766
)
__________
(1) Quarterly amounts relate to the University Group and
Corporate (2) Legal settlement amounts are net of insurance
recoveries (3) Unused space charges include initial charge and
subsequent accretion (4) Quarterly amounts relate to Career
Colleges, Transitional Group and discontinued operations
BALANCE SHEET AND CASH FLOW
Net cash used in operating activities improved to $20.2 million
for the first quarter of 2015, compared to $35.4 million in the
prior year quarter. The current quarter operating cash usage
included cash payments of $13.5 million of real estate payments for
lease obligations of vacated facilities, of which $8.9 million was
paid to exit facilities which reduced future lease obligations by
$19.4 million, as well as $4.9 million of cash payments for legal
settlements and separation payments for the previous CEO. We
continue to expect to end 2015 with over $190 million in total
cash, cash equivalents, restricted cash and short-term and
long-term investments.
Capital expenditures remained relatively flat at $3.4 million
during the quarter ended March 31, 2015, and $3.5 million for the
quarter ended March 31, 2014.
As of March 31, 2015 and March 31, 2014, cash, cash equivalents,
restricted cash and short-term and long-term investments totaled
$213.7 million and $331.7 million, respectively.
Cash and Cash Flow from Q1 2015
Q4 2014 (3) Q3 2014 Q2
2014 Q1 2014 Operations ($ in thousands)
Consolidated Cash, Cash
Equivalents,Restricted Cash and Short-Term andLong-Term Investments
(1)
$ 213,739 $ 247,002 $ 258,274
$ 281,991 $ 331,741 Cash Flow
from Operations (2) $ (20,176 ) $ (17,479 ) $ (19,860
) $ (45,865 ) $ (35,420 )
__________
(1) Consolidated cash, cash equivalents, restricted cash and
short-term and long-term investment balances are quarter end
balances and include both continuing and discontinued operations.
(2) Cash flow from operations includes payments of legal
settlements of $2.4 million, $1.3 million and $21.6 million during
the first quarter of 2015, fourth quarter of 2014 and second
quarter of 2014, respectively. (3) The fourth quarter of 2014
ending cash, cash equivalents, restricted cash and investment
balance includes $10.0 million of restricted cash related to
borrowings under the Credit Agreement. The $10.0 million of
outstanding borrowings was repaid during the first quarter of 2015.
CONFERENCE CALL INFORMATION
Career Education Corporation will host a conference call on
Wednesday, May 6, 2015 at 5:00 p.m. Eastern time. Interested
parties can access the live webcast of the conference call and the
related presentation materials at www.careered.com in the Investor
Relations section of the website. Participants can also listen to
the conference call by dialing 800-580-9478 (domestic) or
630-691-2769 (international) and citing code 39490822. Please
log-in or dial-in at least 10 minutes prior to the start time to
ensure a connection. An archived version of the webcast will be
accessible for 90 days at www.careered.com in the Investor
Relations section of the website. A replay of the call will also be
available for seven days by calling 888-843-7419 (domestic) or
630-652-3042 (international) and citing code 39490822.
ABOUT CAREER EDUCATION CORPORATION
Career Education’s academic institutions offer a high-quality
education to a diverse student population in a variety of
disciplines through online, on-ground and hybrid learning programs.
Our two universities – American InterContinental University (“AIU”)
and Colorado Technical University (“CTU”) – provide degree programs
through the master’s or doctoral level as well as associate and
bachelor’s levels. Both universities predominantly serve students
online with career-focused degree programs that meet the
educational demands of today’s busy adults. AIU and CTU continue to
show innovation in higher education, advancing new personalized
learning technologies like their intellipath™ adaptive learning
platform that allow students to more efficiently move toward
earning a degree by receiving course credit for knowledge they can
already demonstrate. Career Education is committed to providing
high-quality education that closes the gap between learners who
seek to advance their careers and employers needing a qualified
workforce.
A listing of individual campus locations and web links to Career
Education’s institutions can be found at www.careered.com.
Except for the historical and present factual information
contained herein, the matters set forth in this release, including
statements identified by words such as “expect,” “believe,” “will,”
“anticipate,” “continue,” “on track,” “position us” and similar
expressions, are forward-looking statements as defined in
Section 21E of the Securities Exchange Act of 1934, as
amended. These statements are based on information currently
available to us and are subject to various assumptions, risks,
uncertainties and other factors that could cause our results of
operations, financial condition, cash flows, performance, business
prospects and opportunities to differ materially from those
expressed in, or implied by, these statements. Except as expressly
required by the federal securities laws, we undertake no obligation
to update or revise such factors or any of the forward-looking
statements contained herein to reflect future events, developments
or changed circumstances, or for any other reason. These risks and
uncertainties, the outcomes of which could materially and adversely
affect our financial condition and operations, include, but are not
limited to, the following: declines in enrollment; negative trends
in the real estate market which could impact the costs related to
teaching out campuses and the success of our initiatives to reduce
our real estate obligations; the success of our initiatives to
divest our remaining Career College institutions and culinary arts
campuses; rulemaking by the U.S. Department of Education or any
state and increased focus by Congress, the President and
governmental agencies on for-profit education institutions; our
continued compliance with and eligibility to participate in Title
IV Programs under the Higher Education Act of 1965, as amended, and
the regulations thereunder (including the gainful employment and
financial responsibility standards prescribed by the U.S.
Department of Education), as well as national and regional
accreditation standards and state regulatory requirements; the
impact of management changes; our ability to successfully defend
litigation and other claims brought against us; and changes in the
overall U.S. or global economy. Further information about these and
other relevant risks and uncertainties may be found in the
Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2014 and its subsequent filings with the
Securities and Exchange Commission.
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
March 31, December 31,
2015
2014 (unaudited) ASSETS CURRENT ASSETS:
Cash and cash equivalents, unrestricted $ 69,244
$
93,832 Restricted cash 13,938 22,938 Short-term investments
123,183 122,858 Total cash and cash
equivalents, restricted cash and short-term investments 206,365
239,628 Student receivables, net 26,382 24,564 Receivables,
other, net 18,938 18,925 Prepaid expenses 14,310 14,679 Inventories
3,066 3,305 Other current assets 1,983 2,384 Assets held for sale
(1) 76,211 76,846 Assets of discontinued operations 255
473 Total current assets 347,510
380,804
NON-CURRENT ASSETS: Property
and equipment, net 65,076 73,083 Goodwill 87,356 87,356 Intangible
assets, net 8,064 9,819 Student receivables, net 3,011 2,926 Other
assets 17,703 18,571 Assets of discontinued operations 914
975
TOTAL ASSETS $
529,634 $ 573,534
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT
LIABILITIES: Short-term borrowings $ - $ 10,000 Accounts
payable 28,677 21,968 Accrued expenses: Payroll and related
benefits 23,877 29,545 Advertising and production costs 21,757
13,162 Income taxes 1,579 1,633 Other 19,359 21,440 Deferred
tuition revenue 34,036 37,572 Liabilities held for sale (1) 51,036
50,357 Liabilities of discontinued operations 13,073
15,506 Total current liabilities 193,394
201,183
NON-CURRENT LIABILITIES:
Deferred rent obligations 42,641 48,381 Other liabilities 16,662
19,178 Liabilities of discontinued operations 18,991
22,859 Total non-current liabilities 78,294
90,418
STOCKHOLDERS' EQUITY:
Preferred stock - - Common stock 826 823 Additional paid-in capital
607,643 606,531 Accumulated other comprehensive loss (658 ) (853 )
Retained deficit (134,284 ) (109,403 ) Cost of shares in treasury
(215,581 ) (215,165 ) Total stockholders' equity
257,946 281,933
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 529,634
$ 573,534 ____________ (1)
During the first quarter of 2015, the Company made the
decision to sell one of its campuses which is currently reported
within the Career Colleges segment. As a result of the decision to
sell this campus, the assets and liabilities for this campus are
classified as held for sale within continuing operations and are
presented along with the LCB campuses as held for sale on our
condensed consolidated balance sheet as of March 31, 2015.
CAREER EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (In
thousands, except per share amounts and percentages)
For the Quarter Ended
March 31, % of % of Total Total
2015 Revenue 2014 Revenue
REVENUE: Tuition and registration fees $ 181,401 99.5 % $
196,909 99.4 % Other 901 0.5 % 1,245
0.6 % Total revenue 182,302 198,154
OPERATING EXPENSES: Educational services and
facilities 54,951 30.1 % 61,638 31.1 % General and administrative
139,148 76.3 % 148,446 74.9 % Depreciation and amortization 6,785
3.7 % 9,945 5.0 % Asset impairment 6,019 3.3 %
74 0.0 % Total operating expenses 206,903
113.5 % 220,103 111.1 % Operating loss (24,601
) -13.5 % (21,949 ) -11.1 %
OTHER (EXPENSE)
INCOME: Interest income 160 0.1 % 106 0.1 % Interest expense
(162 ) -0.1 % (81 ) 0.0 % Miscellaneous (expense) income
(387 ) -0.2 % 482 0.2 % Total other (expense) income
(389 ) -0.2 % 507 0.3 %
PRETAX
LOSS (24,990 ) -13.7 % (21,442 ) -10.8 % (Benefit from)
provision for income taxes (211 ) -0.1 % 220
0.1 %
LOSS FROM CONTINUING OPERATIONS (24,779 ) -13.6
% (21,662 ) -10.9 % Loss from discontinued operations, net
of tax (102 ) -0.1 % (36,481 ) -18.4 %
NET
LOSS (24,881 ) -13.6 % (58,143 ) -29.3 %
OTHER COMPREHENSIVE LOSS, net of tax: Unrealized gains
(losses) on investments 195 (28 )
COMPREHENSIVE LOSS
$ (24,686 ) $ (58,171 )
NET LOSS PER SHARE - DILUTED: Loss from continuing
operations $ (0.37 ) $ (0.32 ) Loss from discontinued operations
(0.00 ) (0.55 ) Net loss per share $ (0.37 ) $ (0.87
)
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
67,534 66,994
_____________ CAREER EDUCATION CORPORATION AND
SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH
FLOWS (In thousands)
For the Quarter Ended March 31, 2015
2014 CASH FLOWS FROM OPERATING
ACTIVITIES: Net loss $ (24,881 ) $ (58,143 ) Adjustments to
reconcile net loss to net cash used in operating activities: Asset
impairment 6,019 67 Depreciation and amortization expense 6,712
15,431 Bad debt expense 4,275 5,852 Compensation expense related to
share-based awards 940 1,341 Loss on disposition of property and
equipment 3 26 Changes in operating assets and liabilities
(13,244 ) 6 Net cash used in operating activities
(20,176 ) (35,420 )
CASH FLOWS FROM
INVESTING ACTIVITIES: Purchases of available-for-sale
investments (15,259 ) (29,810 ) Sales of available-for-sale
investments 14,754 14,320 Purchases of property and equipment
(3,369 ) (3,468 ) Net cash used in investing
activities (3,874 ) (18,958 )
CASH FLOWS
FROM FINANCING ACTIVITIES: Issuance of common stock 174 196
Payment on borrowings (10,000 ) - Change in restricted cash
9,000 (384 ) Net cash used in financing activities
(826 ) (188 )
EFFECT OF FOREIGN CURRENCY
EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS:
288 10
NET DECREASE IN CASH
AND CASH EQUIVALENTS (24,588 ) (54,556 )
DISCONTINUED
OPERATIONS CASH ACTIVITY INCLUDED ABOVE: Add: Cash balance of
discontinued operations, beginning of the period - 475 Less: Cash
balance of discontinued operations, end of the period - 847
CASH
AND CASH EQUIVALENTS, beginning of the period 93,832
318,468
CASH AND CASH EQUIVALENTS, end of
the period $ 69,244 $ 263,540
CAREER
EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED SELECTED
SEGMENT INFORMATION (In thousands, except percentages)
For the Quarter Ended March
31, 2015 2014 REVENUE: CTU $ 85,127
$ 86,920 AIU 53,066 52,573 Total
University Group 138,193 139,493
Career Colleges 39,772 47,832 Corporate and Other 39
100
Subtotal 178,004 187,425
Transitional Group 4,298 10,729
Total $ 182,302 $ 198,154
OPERATING (LOSS)
INCOME: CTU $ 14,616 $ 14,481 AIU (2,887 ) (3,583
) Total University Group 11,729 10,898
Career Colleges (22,110 ) (13,922 ) Corporate and Other
(5,860 ) (11,136 )
Subtotal (16,241
) (14,160 ) Transitional Group
(8,360 ) (7,789 ) Total $ (24,601 ) $ (21,949 )
OPERATING (LOSS) MARGIN: CTU 17.2 % 16.7 % AIU -5.4 % -6.8 %
Total University Group 8.5 % 7.8 % Career Colleges -55.6 %
-29.1 % Corporate and Other NM NM
Subtotal -9.1
% -7.6 % Transitional Group NM NM Total
-13.5 % -11.1 % _______________
CAREER EDUCATION CORPORATION AND
SUBSIDIARIES UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP
ITEMS (1) (In thousands)
Adjusted EBITDA
Q1 2015 Q4 2014 Q3
2014 Q2 2014 Q1 2014
University Group
and Corporate:
Pre-tax loss from continuing operations $ (24,990 ) $ (7,747 ) $
(31,651 ) $ (11,664 ) $ (21,442 ) Transitional Group operating loss
8,360 10,138 10,856 9,091 7,789 Career Colleges operating loss
22,110 13,650 29,908 16,273 13,922 Interest expense (income), net 2
(38 ) (120 ) (177 ) (25 ) Depreciation and amortization (3) 4,361
5,170 5,402 5,732 6,108 Stock-based compensation (3) 940 966 950
1,020 1,341 Legal settlements (3) (5) - - - (400 ) 2,850 Asset
impairments (3) - - 73 - 77 Unused space charges (3) (6) 556 (373 )
(368 ) (363 ) (380 ) Insurance recovery - - (8,588 ) - - Cumulative
adjustment related to revenue recognition (3) (7) 93
1,354 - -
-
Adjusted EBITDA--University Group
and Corporate (2) $ 11,432
$ 23,120 $ 6,462
$ 19,512 $ 10,240
Memo: Advertising Expenses (3) $
50,587 $ 36,731
$ 50,410 $ 37,407
$ 46,655
Career Colleges,
Transitional Group and Discontinued Operations
(4):
Pre-tax loss from discontinued operations $ (102 ) $ (17,195 ) $
(15,201 ) $ (33,046 ) $ (36,481 ) Transitional Group operating loss
(8,360 ) (10,138 ) (10,856 ) (9,091 ) (7,789 ) Career Colleges
operating loss (22,110 ) (13,650 ) (29,908 ) (16,273 ) (13,922 )
Loss on sale of business (8) - - - 311 - Depreciation and
amortization (8) 2,351 7,319 7,739 8,662 9,323 Legal settlements
(8) 1,485 - 225 2,000 3,000 Asset impairments (8) 6,019 14,203
14,412 7,454 (10 ) Unused space charges (6) (8) (2,424 ) (2,063 )
(3,343 ) 920 2,873 Cumulative adjustment related to revenue
recognition (7) (8) (67 ) 1,029
- - -
Adjusted EBITDA--Career Colleges, Transitional and Discontinued
Operations (2) $ (23,208 )
$ (20,495 ) $ (36,932
) $ (39,063 ) $
(43,006 )
Consolidated Adjusted EBITDA $
(11,776 ) $ 2,625
$ (30,470 ) $ (19,551
) $ (32,766 )
(1) The Company believes it is useful to present non-GAAP
financial measures which exclude certain significant items as a
means to understand the performance of its operations. As a general
matter, the company uses non-GAAP financial measures in conjunction
with results presented in accordance with GAAP to help analyze the
performance of its operations, assist with preparing the annual
operating plan, and measure performance for some forms of
compensation. In addition, the company believes that non-GAAP
financial information is used by analysts and others in the
investment community to analyze the company's historical results
and to provide estimates of future performance and that failure to
report non-GAAP measures could result in a misplaced perception
that the company's results have underperformed or exceeded
expectations. We believe adjusted EBITDA allows us to
compare our current operating results with corresponding historical
periods and with the operational performance of other companies in
our industry because it does not give effect to potential
differences caused by items we do not consider reflective of
underlying operating performance. We also present adjusted EBITDA
because we believe it is frequently used by securities analysts,
investors and other interested parties as a measure of performance.
In evaluating adjusted EBITDA, investors should be aware that in
the future we may incur expenses similar to the adjustments
presented above. Our presentation of adjusted EBITDA should not be
construed as an inference that our future results will be
unaffected by expenses that are unusual, non-routine or
non-recurring. Adjusted EBITDA has limitations as an analytical
tool, and you should not consider it in isolation, or as a
substitute for net income (loss), operating income (loss), or any
other performance measure derived in accordance and reported under
GAAP or as an alternative to cash flow from operating activities or
as a measure of our liquidity. Non-GAAP financial measures,
when viewed in a reconciliation to corresponding GAAP financial
measures, provide an additional way of viewing the company's
results of operations and the factors and trends affecting the
company's business. Non-GAAP financial measures should be
considered as a supplement to, and not as a substitute for, or
superior to, the corresponding financial results presented in
accordance with GAAP.
(2) Management assesses results
of operations for the University Group and Corporate separately
from Career Colleges and the Transitional Group. As a result,
management views adjusted EBITDA from the University Group and
Corporate separately from the remainder of the organization, to
assess results and make decisions. Accordingly, the Career Colleges
and Transitional Group operating losses are added back to pre-tax
loss from continuing operations and subtracted from pre-tax loss
from discontinued operations.
(3) Quarterly amounts
relate to the University Group and Corporate.
(4)
The Company announced the Culinary Arts
segment as held for sale during the fourth quarter of 2014 and it
is therefore now reported within discontinued operations. Quarterly
adjusted EBITDA amounts for Culinary Arts include:
Q1 2015 Q4 2014 Q3 2014
Q2 2014 Q1 2014 Pre-tax income
(loss) $ 250 $ (15,927 ) $ (12,602 ) $ (19,771 ) $ (18,021 )
Depreciation and amortization - 4,504 4,282 4,310 4,268 Legal
settlements 775 - - 2,000 3,000 Asset impairments - 10,320 1,523
7,400 - Unused space charges (377 ) 65 213 (467 ) (178 ) Cumulative
adjustment related to revenue recognition 54
514 - -
- Total
$ 702
$ (524 ) $ (6,584
) $ (6,528 ) $
(10,931 ) (5) Legal settlement amounts
are net of insurance recoveries.
(6) Unused space
charges represent the net present value of remaining lease
obligations less an estimated amount for sublease income as well as
the subsequent accretion of these charges.
(7)
Revenue recognition adjustment relates to the accounting for
students who withdraw from one of our institutions prior to
completion of their program. This adjustment now reflects revenue
earned on a cash-basis of accounting beginning in the fourth
quarter of 2014 for these students.
(8) Quarterly
amounts relate to Career Colleges, the Transitional Group and
discontinued operations.
Investors:Alpha IR GroupSam Gibbons or Chris Hodges(312)
445-2870CECO@alpha-ir.comorMedia:Career Education
CorporationMark SpencerDirector, Corporate Communications(847)
585-3802
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